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ECB lowers benchmark interest rates

THE EUROPEAN Central Bank (ECB) cut interest rates by 50 basis points to 2 percent on January 19 and analysts expect another 50 basis point cut in March, according to the latest Reuters poll of analysts. The majority of analysts expect rates to bottom out at 1 percent later this year, Reuters newswire reported.

THE EUROPEAN Central Bank (ECB) cut interest rates by 50 basis points to 2 percent on January 19 and analysts expect another 50 basis point cut in March, according to the latest Reuters poll of analysts. The majority of analysts expect rates to bottom out at 1 percent later this year, Reuters newswire reported.

The scope for further cuts to eurozone interest rates is limited, said George Provopoulos, ECB Governing Council member, wrote Reuters.

Provopoulos said rates were "already at very low levels," implying that "at some point in the future moves will take place in small steps". He also joined the growing list of policymakers warning against cutting benchmark borrowing costs down to zero, wrote Reuters.

"I should caution in the sense that some people interpret this as interest rates going close to zero, which is not true in our case," Provopoulos was reported to say.

Ewald Nowotny, another member of the ECB's Governing Council, struck a similarly reluctant tone in a radio interview with broadcaster ORF.

"The ECB has no interest in interest rates going down to zero," the Austrian central bank chief told ORF.

Provopoulos also said he could not exclude downward revisions to the ECB staff's recent economic forecasts, which are due to be updated in March. They are expected to be significantly revised down from the last forecasts in December which predicted the eurozone economy would shrink by as much as 1 percent this year, Reuters reported.

ECB President Jean-Claude Trichet said earlier in January he did not expect the central bank to cut rates to zero and that it wanted to avoid getting caught in a so-called "liquidity trap".

Economists usually define a liquidity trap as when official rates are very low, propensity to save is high, reluctance to lend increases and central bank monetary policy loses its traction, Reuters wrote.

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